- Fading pandemic supports stocks
- House committees expect to wrap up pandemic aid bill within a few days
- U.S. unemployment claims expected to show some continued improvement
- 30-year T-bond auction to yield near 1.95%
Fading pandemic supports stocks — The U.S. stock market has received support in the past several weeks from the sharp decline in new U.S. Covid infections. There are hopes that the infection rate will continue to decline from expanding vaccinations, although the Covid variants that are now in the U.S. could still cause a resurgence.
The 7-day average of new U.S. Covid infections on Wednesday fell to a new 3-1/4 month low of 102,584, according to data compiled by Bloomberg. The single-day number of Covid infections on Wednesday fell to a new 3-1/2 month low of 83,067.
There are various reasons for the recent sharp drop in new U.S. Covid infections. First, the restrictions on public gatherings and mask requirements are undoubtedly helping to reduce new infections. Second, up to 20% of the U.S. population now has some immunity to Covid either because they recovered from the disease or they had at least one vaccination dose.
Bloomberg reports that 46 million vaccine doses have been given in the U.S., which accounts for 14.0 doses per 100 people. There is some overlap, but about 8% of the U.S. population has had Covid, producing a total partial immunity figure of perhaps as much as 20% of the U.S. population. The U.S. is now vaccinating people at the rate of about 1.5 million per day, which means 0.5% of the U.S. population is gaining some Covid immunity from a vaccination dose every day.
There could also be a seasonal pattern to the decline in Covid, similar to the seasonal pattern seen in flu. However, there is no proof as yet of a seasonal element to Covid, which means that idea is only speculative at this point.
House committees expect to wrap up pandemic aid bill within a few days — House Committees are expected to wrap up their work on the $1.9 trillion pandemic aid bill by early next week. The full House is expected to vote on the bill in the week of February 22.
The bill will then be forwarded to the Senate, where it needs only a majority vote since the bill is being handled under the budget reconciliation process. Democrats intend to pass the pandemic aid bill before the current expanded unemployment benefits expire in mid-March.
The House Ways and Means Committee on Wednesday voted in favor of a $400 per week supplement to unemployment benefits through the end of August. Also, the House Committee on Education and Labor yesterday approved the eventual hike in the federal minimum wage to $15 per hour. However, it remains unclear whether that measure will make it into the final bill since there is some opposition within the Democratic party and since there are questions about whether that measure can qualify for the Senate’s budget reconciliation rules.
U.S. unemployment claims expected to show some continued improvement — The consensus is for today’s unemployment claims report to show a continued improvement in the labor market. There are hopes that the U.S. labor market can start improving more quickly in the coming weeks as public restrictions are dropped due to the declining pandemic infection rates.
The consensus is for today’s initial unemployment claims report to show a decline of -21,000 to 758,000, adding to last week’s -33,000 decline to 779,000. Meanwhile, continuing claims are expected to fall -172,000 to 4.420 million, adding to last week’s decline of -193,000 to 4.592 million.
Even after today’s expected declines, the initial claims series would still be 562,000 above February’s pre-pandemic level and continuing claims would be 2.893 million above its pre-pandemic level.
30-year T-bond auction to yield near 1.95% — The Treasury today will conclude this week’s $126 billion quarterly refunding operation by selling $27 billion of 30-year T-bonds. The $27 billion size of today’s 30-year auction is unchanged from November’s auction but is up by $8 billion (+42%) from the $19 billion size that prevailed in 2019 and early 2020 before the pandemic caused the U.S. budget deficit to explode.
The benchmark 30-year T-bond yield yesterday fell to a 1-week low and closed -5 bp at 1.95%, just mildly below Monday’s 1-year high of 2.004%. The 30-year T-bond yield has risen sharply since last fall due to optimism about vaccines and expectations for Democrats to sharply boost fiscal stimulus. That stimulus is expected to boost the economy and push inflation higher, both bearish factors for the T-bond market.
In addition, the Treasury market is being called upon to finance a massive amount of new debt related to pandemic expenses and, later this year, to infrastructure and clean energy spending. The U.S. national debt has soared by $4.5 trillion (+18%) since the pandemic started a year ago, and will continue sharply higher until extra pandemic expenses start tailing off and/or taxes are raised.
The 12-auction averages for the 30-year are as follows: 2.35 bid cover ratio, $5 million in non-competitive bids, 6.0 bp tail to the median yield, 85.8 bp tail to the low yield, and 51% taken at the high yield. The 30-year is mildly above average in popularity among foreign investors and central banks. Indirect bidders have taken an average of 64.8% of the last twelve 30-year T-bond auctions, mildly above the median of 63.6% for all recent coupon auctions.
